The Influence of the Exchange Rate of US Dollars on the Efficiency of Mutual Funds in China

770

14th Apr 2017

Starting with 1992, when the first fund was established in China, the LiuBo fund continuing with the first mutual fund created in the country in 1997 (Barth, 2009, p. 47), the mutual fund in China had known an interesting evolution. Overall, the Chinese economy and its politics that sustain the country’s development are impressive and in the same time interconnected, creating an integrated market and economic approach, which includes the mutual fund among its components.

CHAPTER 1 – INTRODUCTION

1.1 Context

Starting with 1992, when the first fund was established in China, the LiuBo fund continuing with the first mutual fund created in the country in 1997 (Barth, 2009, p. 47), the mutual fund in China had known an interesting evolution. Overall, the Chinese economy and its politics that sustain the country’s development are impressive and in the same time interconnected, creating an integrated market and economic approach, which includes the mutual fund among its components.

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Although China’s national currency is the yuan, the country’s specific economic activities, such as the multiple exports and imports, impose its adaptation to the international economic and industrial rules, for activating on the exchange market.

Therefore, due to its multiple import – export activities, China adopts an international exchange rate for the imported or exported goods. The international market generally adopts the dollar as the main exchange rate. McKinnon and Schnabl observe that “the world is still on the dollar standard” (2011, p. 4). China also embraces the yuan-dollar exchange rate and its entire economic operations and activities are subjected to this exchange rate.

1.2 Objectives of the Dissertation

This dissertation will explore the relation between the yuan-dollar exchange rate on the economic activities that China employs and the country’s mutual fund. The current research paper proposes an in-depth analysis of the efficiency of the mutual funds in China, investigating if the yuan-dollar exchange rate has a contribution to that efficiency. In order to properly understand the relation between the yuan-dollar exchange rate and the mutual funds efficiency, there should be examined a history of the mutual funds, and an evolution of the yuan-dollar exchange rate in China and its advantages or disadvantages over the years upon China’s economy.

1.3 Secondary Aims of the Dissertation

Additionally, the current research paper also aims at illustrating China’s efforts into becoming one of the big economic countries in the world and the most important economic actor in Asia, overcoming Japan. Its political and economic strategies developed into reaching this status will be explored and this dissertation will refer to foreign development investment (FDI), its capital accumulation policies, its economic advantages that imposed China as one of the main actors in the international economic actors, etc.

1.4 Significance of the Study

In the actual economic context, where the US and the EU are in a general economic and political instability, China is making significant effort for aligning both regions to certain stability so that they would not affect its economic activities, because China needs these regions as its marketplaces for its products/commodities. The current study of the mutual funds in China and the implication of the US dollar – yuan exchange rate on its evolution represents an important perspective on the actual economic context. Understanding how the yuan – dollar exchange rate is affecting the Chinese mutual funds will set a more clear perspective on why China is determined to support US and EU.

Because of its capital accumulation, due to the existence and the activity of the mutual funds, China has gained sufficient financial resources to loan money to U.S. and E.U., pulling them out from their current instability. In this way, China gains in two directions: (1) becoming more powerful, as it is a money provider for U.S. and E.U., which implies interest rates and influence; (2) favoring the entrance on new markets, gaining new marketplaces for its products/services.

In addition to these highly significant contributions of the current study, this dissertation will also constitute an additional source of information regarding China’s economy, its mutual funds and the influence of the yuan-dollar exchange rate upon its mutual funds, hence, upon its economy, overall.

1.5 Research Question

Is there a direct correlation between the yuan – U.S. dollar exchange rate and the performances of the Chinese mutual funds?

1.6 Structure of the Study

After presenting the objectives, the secondary aims and the significance of the study in this introductory chapter, in the following sections this dissertation will:

Develop an in-depth literature review; based on the existent study on this topic, and exploring the additional objectives mentioned above also, the second chapter will also try to answer the research question, based solely on previous writings (in chapter II – Literature Review/Survey of Prior Research);

Elaborate a clear explanation and justification of the methodology design employed to develop the study; the T-Test will be explored and described in this chapter (in chapter III – Research Design);

Analyze the results of the research, by reporting, interpreting and discussing the findings (in chapter IV – Results of the Research);

Provide a summary and conclusion, referring to the objectives of the study in relation to the findings that where retrieved out of the employed study. The relevance of the study will be re-discussed and the researcher will also make recommendations and suggestions for further researches.

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1.7 Conclusion of the Chapter

This initial chapter introduced the context of the study, elaborating on the need and significance of the current research. The above – mentioned objectives and secondary aims are significant for the overall structure of the dissertation, because the entire paper will be focused on developing them, in order to answer the question of the study and to verify the hypothesis that will be developed in a future chapter. This introductory chapter has set the foundation of the dissertation, presenting a clear picture of what this research intends to examine and why such an exploration is needed.

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